Every growing company hears the same complaints: not enough hours in the day, meetings that go nowhere, plans that rarely get implemented on time or at all. Most leaders write these off as the normal cost of growth. Research says otherwise. These patterns — what Management Systems calls Growing Pains, are measurable, and they predict financial performance.
What Growing Pains Actually Measure?
Growing Pains occur when an organization’s infrastructure — its resources, operational systems, management systems, and culture — hasn’t kept pace with its size or growth rate.
Our research and experience with thousands of companies over the last 45 years has identified predictable stages of organizational growth. Each stage of growth presents specific challenges that need to be addressed for the organization to continue to thrive. When these challenges are not met, the gap between size and infrastructure produces a predictable set of symptoms. We measure the severity of those symptoms to identify how big is the gap between what the size of the organization needs as an infrastructure to support sustainable success and what size is the organization is currently built for.
Impact on financial performance
The gap between size and infrastructure has a more significant impact than the experienced growing pains. A study published in the European Management Journal (Flamholtz & Hua, 2002), proved that the levels of Growing Pains predict financial performance. Dr. Flamholtz studied a U.S. industrial parts manufacturer built through acquisitions — a „roll-up“ of what had been 15 separate, comparable companies, together generating about $800 million in annual revenue. Each division’s Growing Pains were measured with a validated questionnaire (where the higher the score, the more severe the Growing Pains), completed by 149 managers across the organization. Financial performance was measured as EBIT (earnings before interest and taxes, a standard measure of operating profitability) as a percentage of revenue.
What the data showed?
The results were clear and statistically significant:
- Growing Pains scores explained roughly 49% of the variation in EBIT across divisions — a strong relationship for organizational research.
- Every division with a Growing Pains score below 28 (on a scale between 10 and 50) was profitable. Above that threshold, profitability became a coin flip — half the divisions were profitable, half weren’t.
- A regression-based threshold calculation put the real „safe“ ceiling at a Growing Pains score of about 32 — consistent with what the researchers had been telling clients based on experience, now with statistical backing.
In plain terms: Growing Pains aren’t just uncomfortable. Past a certain severity, they’re a measurable warning sign for financial trouble.
Why timing matters?
The study’s clearest practical lesson: infrastructure has to be built ahead of anticipated growth, not after. Osborne Computers is the cautionary example of that — a company that reached $100 million in revenue within two years, then went bankrupt in year three, having scaled far faster than its infrastructure could support. Companies that invested in infrastructure before they needed it, like Starbucks, who applied our methodology in the 90’s — avoided that fate.
Why this matters for the Playbook?
This is the kind of evidence our Organizational Health Check™ is built on: not an opinion about what makes companies healthy, but a measurable, tested relationship between infrastructure gaps and financial outcomes. Growing Pains are a leading indicator — which means there’s still time to act on them before they show up in the numbers everyone’s already watching.
References:
Flamholtz, E., & Hua, W. (2002). “Strategic Organizational Development, Growing Pains and Corporate Financial Performance: An Empirical Test.” European Management Journal, 20(5), 527–536.